ServiceNow raised its year-end target for AI annual contract value to $1.7 billion on Wednesday, the second increase this year from a $1 billion goal set at the start of 2026, as third-quarter subscription revenue rose 21% to $3.988 billion. ServiceNow shares fell 18.2% in premarket trading Thursday anyway, part of a slide in software and cybersecurity stocks that also took 25% off Fortinet.
Subscription revenue came in 50 basis points above the high end of ServiceNow's own guidance. Total revenue reached $4.106 billion, up 20.5% year over year. The non-GAAP operating margin was 32.5%, 150 basis points ahead of guidance, and non-GAAP net income was $1.039 billion, or $1.00 per diluted share. On a GAAP basis, ServiceNow earned $277 million, or $0.27 per share.
The AI numbers carried the quarter. AI net new annual contract value grew 65% year over year, and consumption of agentic AI in production is up more than 13-fold year to date. AI deals worth more than $1 million rose 4.5 times, and deals spanning five or more AI products rose more than 8.5 times. The $1.7 billion target follows a $1.5 billion goal the company set at its May analyst day.
“Our customers have validated our strategic relevance as the single harness for enterprise intelligence and security.”— Bill McDermott, Chairman and CEO of ServiceNow
Key facts
- 01ServiceNow raised its 2026 AI annual contract value target to $1.7B, up from $1B at the start of the year.
- 02Q3 subscription revenue rose 21% to $3.988B, 50 basis points above the high end of guidance.
- 03AI net new ACV grew 65% year over year, and agentic AI consumption is up more than 13x year to date.
- 04Q4 cRPO growth is guided to 18.5% in constant currency, down from 21% in Q3.
- 05ServiceNow shares fell 18.2% in premarket trading Thursday, while Fortinet dropped 25%.
Large deals grew as well. ServiceNow closed 19 transactions worth more than $5 million in net new annual contract value, up more than 135% from a year earlier, and now counts 680 customers spending more than $5 million a year, up about 23%. Total remaining performance obligations reached $29.7 billion, up 22%, while current remaining performance obligations, or cRPO, hit $13.65 billion, up 21% in constant currency and 100 basis points above guidance.
The forward view is where the numbers soften. ServiceNow guided fourth-quarter subscription revenue to $4.245 billion to $4.255 billion, or 21.5% growth in constant currency, but guided fourth-quarter cRPO growth to 18.5%. Management said early renewals pulled into the third quarter accounted for about half of the cRPO beat, that public-sector mix is a headwind of about 25 basis points, and that transaction-for-commerce provisions exclude about 50 basis points of backlog growth from the metric.
“While cRPO is a good indicator of next year's revenue, it is certainly not perfect”— Gina Mastantuono, President and CFO of ServiceNow
There is also an accounting drag tied to AI deployments. Deployment expertise bundled into select large deals reduced reported subscription growth by about 25 basis points in the third quarter, and ServiceNow expects that to reach about 50 basis points in the fourth quarter, because the value of those services is recognized as professional services revenue instead.
Cash generation improved on lower spending. Free cash flow was $822 million, a 20% margin, and ServiceNow raised its full-year free cash flow margin target to 36% from 35%, citing lower capital expenditures. Third-quarter capex was $91 million, down from $235 million a year earlier. The company bought back no stock in the quarter, compared with $584 million in the same period of 2025, though it repurchased $2.225 billion in the first nine months of the year.
Full-year 2026 subscription revenue guidance rose $15 million at the midpoint to $15.785 billion, or 21% growth in constant currency. ServiceNow held its full-year guidance for an 81% non-GAAP subscription gross margin and a 31.5% non-GAAP operating margin. The company also said its own internal use of AI now generates more than $1 billion in annualized value, more than double the level at the end of 2025.
The premarket drop landed on a morning when investors were sorting through mixed Big Tech results on AI spending. Alphabet fell about 10% in premarket trading after its quarter, while Microsoft rose about 3.6% on strong cash flow and its cloud forecast. Amazon was scheduled to report after the close on Thursday.
ServiceNow did not issue numeric 2027 guidance. Management said it expects AI momentum to support revenue growth in 2027 and beyond.
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